Comments on Proposed “Anti-Counterfeiting” Treaty

On March 21, Essential Action submitted comments to USTR on a proposed anti-counterfeiting treaty.

The comments argue that background information on the treaty conflate the concepts of counterfeiting, “piracy” and infringement. “An agreement based on, or reflecting, such a conflation of distinct concepts is likely to be overly broad, proscribing behavior that cannot correctly be identified as counterfeiting and that is not necessarily detrimental to the public interest.” As regards medicines, the proper focus should be on public health — in the context of the broader problem of substandard medicines — rather than on counterfeiting

The comments argue that Big Pharma should be obligated to disclose publicly information it has on fake pharmaceuticals.

The comments also point out that the key market incentive for medicines counterfeiting is the high price of patented medicines, and that efforts to make medicines available at marginal cost will reduce counterfeiting incentives.

Re: Comments of Essential Action on the Proposal for an Anti-Counterfeiting Trade Agreement

Dear Director Bae,

Essential Action submits the following comments to the Office of the United States Trade Representative (USTR) concerning a proposed Anti-Counterfeiting Trade Agreement (ACTA).

Essential Action is a project of Essential Information, a non-profit 501(c)(3) organization based in Washington, D.C. We are concerned generally with protecting the public domain and the information commons. A key organizational area of focus is promoting access to medicines, including in the United States and especially in developing countries. While we recognize that many other important issues are implicated by the proposed treaty, our comments focus particularly on concerns about the proposed ACTA in the context of the public health priority of ensuring access to safe and affordable medicines to patients around the world, regardless of income or wealth.

ACTA priorities

USTR’s fact sheet and ACTA materials conflate patent, copyright and trademark infringement, “piracy” and counterfeiting. An agreement based on, or reflecting, such a conflation of distinct concepts is likely to be overly broad, proscribing behavior that cannot correctly be identified as counterfeiting and that is not necessarily detrimental to the public interest. For example, commercially interested parties sometimes cast compulsory licensing for medicines — legal under national legislation and World Trade Organization rules — as patent theft or “piracy,” but no one can argue these practices bear any resemblance to counterfeiting. At the same time, an agreement focused on patent, copyright and trademark infringement is likely to overlook important options to control counterfeiting, including by requiring companies to disclose knowledge of counterfeit products.

A multilateral counterfeiting treaty should concern itself specifically and uniquely with the dangers and harms posed to the public by counterfeit goods. Paramount among these concerns is the proliferation of unsafe and ineffective products. Sub-standard drugs, for example, threaten patient health worldwide. Notably, however, these dangers are not limited to counterfeit products: legitimate businesses, as well, commonly sell drugs with inappropriate amounts of the active ingredient, and a large percentage of brand-name drugs sold in the United States use raw materials manufactured in India, China and other countries in factories that are inadequately inspected by the Food and Drug Administration. The public interest in anti-counterfeiting, then, is not as a subset of patent, copyright and trademark enforcement, but rather a subset of state actions to ensure product safety and efficacy. At least as regards medicines, this suggests counterfeiting should be considered in a broader framework than the ACTA proposes.

Further, patents, trademarks and copyrights are private rights subject to private enforcement actions. While provided for in public laws, it is generally the responsibility of private parties to identify alleged violations of patents, copyrights and trademarks and bring suit. As proposed, ACTA would harness considerable public resources to strengthen the enforcement of these private rights. This use of public means for private ends is not only tangential to the legitimate public goals of protecting consumers from unsafe and ineffective products, it may also come at significant financial cost to taxpayers.

“Piracy”

ACTA’s use of the term “piracy” also suggests an interest in capturing a much broader pattern of conduct than counterfeiting. Piracy as a term is not technically descriptive, but is instead broadly applicable and useful in the art of persuasion. Its inclusion in ACTA would open the agreement to abuse, and it should be eliminated. Conduct ACTA intends to regulate or discourage should be described in precise terms.

International cooperation: sharing of information and disclosure

USTR seeks input concerning the sharing of information between parties and cooperation of law enforcement agencies. Equally important is the sharing of counterfeiting information by legitimate private companies, which often have the first or most complete accounts of counterfeit products. Without private companies disclosing their knowledge, agencies will be handicapped in their law enforcement efforts.

For example, although pharmaceutical companies depend on law enforcement and public resources to locate counterfeits and maintain consumer confidence in their brands, companies do not always disclose what they know about counterfeits in the market. Reportedly, the Pharmaceutical Security Institute (PSI), formed by fourteen pharmaceutical companies in 2002, recorded 76 cases of counterfeiting in 2004. The FDA only knew of 58. PSI’s counterfeiting database is considered the world’s best, yet it “is not accessible to the WHO, health authorities or the public.” Industry groups seem to favor general public awareness of the counterfeiting problem, which may lead to public assistance in enforcement, but sometimes disfavor public knowledge of specific counterfeited products.

For example, in 1995, GlaxoSmithKline allegedly asked the Ghanaian government not to alert the public of the presence of fake halofantrine antimalarial syrup in the market, for the sake of the company’s reputation. In 2002 in Kansas City, BMS and Eli Lilly settled for $72 million with the families of deceased victims of counterfeit drugs, seemingly to avoid the precedent that drug companies could be held liable for failing to disseminate information about counterfeits.

Governments should require companies to disclose any information they obtain about the existence of dangerous counterfeit products. If the public is to incur expenses combating counterfeiting, the public should at least have a right to the best information available so its enforcement activities are effective. We are concerned that proposals for mandatory disclosure requirements are absent from the available materials on the ACTA.

There are at least two existing proposals for statutory disclosure requirements. Cockburn et al. propose a model based on the United Kingdom Civil Aviation Authority’s reporting requirements for suspected unapproved aircraft parts. Companies would be required to report suspected counterfeits to regulatory agencies. The agency would then take responsibility for confirming the report and deciding whether and when to alert law enforcement and the public. Meanwhile, legislation introduced by Representative Steve Israel (2nd District of New York) proposed requiring drug companies to notify the FDA within two days of learning of a counterfeit threat.

Enforcement practices: public/private advisory groups

USTR’s ACTA fact sheet mentions provisions for advisory groups assisting in enforcement practices. It is important that any such advisory groups consist of balanced memberships representing not only industry, but also consumers, and, in the case of medicines, generics firms as well as brand-name companies. Overrepresentation of patent, copyright and trademark-dependent industries in anti-counterfeiting enforcement agencies could lead to enforcement priorities and expenses out of step with the public’s interest in safe and effective products and a competitive marketplace.

Role of market forces

There is broad consensus that high prices of some legitimate products drive both supply and demand in markets for counterfeits. For example, according to the World Health Organization, “When the prices of medicines become excessively high and unaffordable, patients tend to look for cheaper sources. Such situation [sic] encourages counterfeiters to produce cheaper counterfeit drugs. … When price differences exist between identical products, patients and consumers go for the cheaper ones. This creates a greater incentive for counterfeiters to supply cheap counterfeit medicines.” Despite a relatively well-controlled drug supply, high prices make the United States an especially attractive target. “America has become the go-to market for counterfeiters because we pay the highest prices of anyone in the world,” states Katherine Eban, author of “Dangerous Doses: How counterfeiters are contaminating America’s drug supply.” Public Citizen commented to the FDA, “In our opinion, as the costs Americans pay for prescription drugs continue to skyrocket and as the disparity in these prices continues to grow in comparison to other countries the economic incentives for counterfeiting and selling substandard drugs increases proportionally. This incentive is now greater than ever before.”

Patent regimes, which often allow exclusive rights holders to set high prices without fear of competition, create incentives both to innovate and to counterfeit. The high cost of research and development is reflected in each consumer’s purchase of a bottle of brand-name pills. By contrast, a prize system, in which medicines could be sold at marginal cost, with innovators compensated through prizes rather than marketing monopolies, would create incentives only to innovate. Counterfeiters would be forced to compete with low-price legitimate sales reflecting only the low overhead and manufacturing costs of each pill. Incentives to trade in fakes would dwindle. There are other possible measures to reduce prices, and which would also reduce incentives to counterfeit.

A treaty focused on counterfeiting should not fail to address the role of the high prices for medicines in promoting counterfeiting. We recommend that this matter be discussed in the context of any treaty negotiation, and that any resulting treaty include provisions for a study and review of the interconnections between high price and counterfeiting, and possible measures to contain prices.